Management Letter:

Suggested Improvements in IRS' Accounting Procedures and Internal Controls

AIMD-00-162R: Published: Jun 14, 2000. Publicly Released: Jun 14, 2000.

Additional Materials:

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Gregory D. Kutz
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Pursuant to a legislative requirement, GAO provided information on the results of the Internal Revenue Service's (IRS) financial statements and on the effectiveness of its internal controls for fiscal year (FY) ending September 30, 1999.

GAO noted that: (1) GAO found weaknesses in IRS' accounting procedures for certain assets purchased in one year but used for a multi year period; (2) IRS corrected this problem for its FY 1999 balance sheet; (3) IRS does not consistently follow procedures for reimbursements that it expects to receive when it provides goods and services to other federal agencies, state and foreign governments, and private organizations; (4) based on a statistical sample of September 30, 1999, reimbursement receivables, GAO determined that the gross amount of reimbursable receivables was not fairly stated, although due to the allowance for bad debts accounts, GAO did not take exception to the net amount; (5) some problems were also noted with respect to IRS' use of its allowance for bad debts account; (6) GAO found that existing review procedures at IRS' national office were inadequate to prevent errors in transactions posted to the general ledger and in financial information reported to Treasury; (7) the self-assessments IRS performs under the Federal Managers' Financial Integrity Act (FMFIA) can be a better tool for disclosing and correcting its internal weaknesses; (8) GAO found that IRS' FY 1999 FMFIA process ended too early to provide reasonable assurance that all material weaknesses that existed during the reporting year were adequately disclosed; (9) specifically, although IRS did not submit its FY 1999 FMFIA assurance statement to Treasury until February 2000, IRS concluded its internal self-assessment process for FY 1999 on September 30, 1999; (10) IRS officials informed GAO that any material weaknesses that came to their attention during this intervening period would be considered in the succeeding reporting period, rather than FY 1999; and (11) as a result, to the extent material weaknesses that existed in FY 1999 were identified during this period, IRS' FY 1999 FMFIA assurance statement would ordinarily exclude them and potentially present an incomplete list of material weaknesses and a misleading assessment of the effectiveness of IRS' internal controls in meeting the objectives of FMFIA.

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